Pinenet Co., Ltd. improperly limited its trading counterpart's business activities by imposing tie-in sales as a condition of business engagement in violation of the Fair Trade Law
Case:
Pinenet Co., Ltd. improperly limited its trading counterpart's business activities by imposing tie-in sales as a condition of business engagement in violation of the Fair Trade Law
Key Words:
tie-in sale, game software, cybercafe
Reference:
Fair Trade Commission Decision of January 31, 2002 (the 534th Commissioners' Meeting); Disposition (91) Kung Ch'u Tzu No. 091022
Industry:
Data Storage Media Units Manufacturing and Reproducing (2640)
Relevant Law:
Article 19(vi) of the Fair Trade Law
Summary:
1. Pinenet Co., Ltd. (Pinenet), when selling game software launched by Unalis Corporation (Unalis), sold popular and not-so-popular products in a tie-in sale arrangement and refused to quote prices for single products contained in the bundled packages. In addition, Pinenet stipulated various unfair restrictive clauses in its contract, compelling cybercafe operators to buy its whole package of 10 game software products and depriving them of the freedom to choose individual game products. Moreover, when the contracts were signed, half or more of the game software products contained in the package were still unavailable on the market and no prices were quoted for them. Judging from the above facts, Pinenet's intention to sell its products using a tie-in sale arrangement was obvious. 2. Pinenet stated that the "Unalis Cybertainment Association Contract" was not a standard form contract. If cybercafe operators had any issues regarding the content of the contested contract, they could discuss them and reach a mutual agreement on the final contract content. Accordingly, the software could be sold separately or as a package. However, the complainant and various cybercafe operators that the Fair Trade Commission (FTC) interviewed in its investigation bore witness that Pinenet did not give cybercafe operators the alternative of selecting individual software products. To the contrary, it demanded cybercafe operators purchase the entire package of the 10 game software products listed in the attachment of the contested contract. Furthermore, when the contract was signed, some products in the package were still unavailable on the market, and their prices were therefore not indicated. 3. Pinenet's operating revenue in 2000 was estimated to comprise 14.35% of the total output value of the nation-wide game software distribution industry. The following factors were also considered by the FTC: (1) Among the nation's 2,500 to 3,500 cybercafe operators of various business scales, 1,500 of them (some 42% to 60%) had entered into contracts with Pinenet. (2) According to the interviewed cybercafe operators, of the software covered by the contract, the Half-life and Diablo series were very popular among cybercafe consumers, and Diablo II Expansion: Lord of Destruction and Diablo II: Traditional Chinese ranked fourth and seventh respectively on PC Gamer's list of most popular games. (3) About 60% to 70% of consumers going to the cybercafe mainly went there to play PC games. As a result, for cybercafe operators, one of the most important factors in attracting consumers is to provide the most popular PC game software products. (4) Given the computer equipment and limited hard disk capacity in a cybercafe of average size, the enforced tie-in sale of game software products not in popular demand would cause cybercafe operators to waste considerable space on their computer equipment and hard disk. This would crowd out other game software providers, denying them a fair change to compete. Moreover, cybercafe operators incurred heavy costs from the not-so-popular game software discs, which were stacked, unopened, in their storerooms. With respect to the domestic market, Unalis was the sole agent for the 10 game software products listed in the attachment of the contested contract, while Pinenet was Unalis's sole licensed distributor of the contested cybercafe game software products. Therefore, it is apparent that Pinenet had superior market power relative to cybercafe operators. Its influence was also significant when considering the high dependence of cybercafe operators on popular game software products and the non-substitutability of such products due to their legal protection of copyright. For those reasons, Pinenet's contested act of tie-in sales was likely to impede fair competition on the domestic game software market and thus constituted a violation of Article 19(vi) of the Fair Trade Law. The FTC accordingly imposed an administrative penalty of NT$100,000 on Pinenet pursuant to Article 41 of the same law.Appendix: Pinenet Co., Ltd.'s Uniform Invoice Number: 70480903 Summarized by Chen, Shu-Hua; Supervised by Shin, Ching-Chun